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Speaker 1: Let's get to Chuck Lieberman, our guest chief investment officer

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Speaker 1: and managing partner at Advisors Capital Management. Chuck, you'd expect

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Speaker 1: some nervousness ahead of the CPI report, and we got

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Speaker 1: that today, But in fact you you might have expected

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Speaker 1: even more given the micron and video warnings of these

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Speaker 1: two days and the cyclical nature of these types of companies.

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Speaker 1: As Doug mentioned, all thirty stocks in the Socks Index

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Speaker 1: down today. Do you take today as as a warning

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Speaker 1: of a bigger sell off ahead or almost as a positive? Well,

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Speaker 1: I think the fact that the market has come down

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Speaker 1: nicely off its highs does create more value um. One

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Speaker 1: of the things that we saw when we're looking at

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Speaker 1: the market's number of months ago, especially for high pe

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Speaker 1: multiple stocks, they needed rapid growth to justify their valuation um,

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Speaker 1: and those valuations have come down quite a bit, so

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Speaker 1: they look a lot more interesting than they used to.

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Speaker 1: You have to go through them one by one. It's

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Speaker 1: a market of stocks, not a stock market, and so

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Speaker 1: you have to evaluate each company its prospects, and as

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Speaker 1: we do that, we find a lot of them offer

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Speaker 1: a lot of value, even on the growth side, which

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Speaker 1: are more vulnerable to rising interest rates. Well, you know

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Speaker 1: you have the stocks index hit Chuck, and you know

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Speaker 1: it is of course off hugely, But it wasn't that

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Speaker 1: always going to happen. And should we not read too

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Speaker 1: much into what's going on with these chip makers, given

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Speaker 1: how post COVID and during COVID we had of course

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Speaker 1: huge demand. You're exactly right, Rishard. Uh. These are highly

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Speaker 1: cyclical companies, and so any slow down in economic growth

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Speaker 1: is going to have a huge impact on that sector,

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Speaker 1: especially considering that we had shortages of chips because of

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Speaker 1: the pandemic and everyone was trying to ratchet up production

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Speaker 1: as quickly as possible, so the supply maybe catching up

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Speaker 1: to demand, and certainly in some parts of that market

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Speaker 1: that's already the case because demands has weakened. So ships

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Speaker 1: are not necessarily uh indicative of what's happening more broadly

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Speaker 1: in the economy. The rest of the economy looks like

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Speaker 1: it's holding up very very well. I really have a

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Speaker 1: major problem with looking at GDP to understand what's going on. Uh.

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Speaker 1: It's a very difficult thing to estimate, uh. Bure of

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Speaker 1: economic analysis UH throws tremendous resources at it. But one

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Speaker 1: of the things that I regard as a truism is

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Speaker 1: that it's much much easier to count noses, and so

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Speaker 1: I placed much greater confidence in the behavior of the

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Speaker 1: Employment report being an accurate indicator of what's happening in

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Speaker 1: the economy rather than GDP. Okay, so we've got the

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Speaker 1: g the CPI report coming, everybody's focused on that. Do

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Speaker 1: you think that even a six handle there means the

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Speaker 1: FED is going to have to stay aggressive? And what

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Speaker 1: sort of number are you looking for? The Fed is

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Speaker 1: going to have to stay aggressive? I think either way,

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Speaker 1: my concern is said is the rise in labor costs.

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Speaker 1: We got a unit labor costs report earlier today showed

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Speaker 1: very very high inflation or labor costs. That's going to

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Speaker 1: provide a tremendous floor, very solid floor underneath inflation. Inflation

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Speaker 1: is going to come down near term because of some

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Speaker 1: of the transitory components like autos or used cars. Uh,

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Speaker 1: some of that will come out of the CPI, but

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Speaker 1: more fundamentally, labor costs are driving the CPI up. So

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Speaker 1: I don't CPI to come down to where the FED

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Speaker 1: needs to Um, chuck, I know what you're looking at

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Speaker 1: the Treasury curve, but the chat already focused on the

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Speaker 1: spread vent twos and tends of the last time this

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Speaker 1: was this inverted, I remember it well, but not fondly.

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Speaker 1: It was two thousand the feated rays rates to what

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Speaker 1: six and a half percent expectations were That essentially rates

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Speaker 1: with about seven and three cos. The yield of that

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Speaker 1: was distorted by the healthy state of the Federal Reserve

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Speaker 1: is finances. However, now it's distorted by that very balance

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Speaker 1: sheet not being like that as well as QT. What

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Speaker 1: do you make of it all? Yeah, that's one of

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Speaker 1: the real conundrums as far as I'm concerned. The inversion

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Speaker 1: of the curve would normally suggest that the economy is

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Speaker 1: about to go into recession, and I just don't see

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Speaker 1: the recession anywhere on the horizon. UM rates are just

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Speaker 1: not restrictive, uh, net of inflation and you can use

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Speaker 1: whatever inflation number you think is appropriate. I would not

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Speaker 1: use the nine CPI, but whether it's four or four

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Speaker 1: and a half five three and a half U we

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Speaker 1: have negative real rates. That's not going to restrict economic activity.

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Speaker 1: But Chuck, the lag defect is part of this. UM

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Speaker 1: markets can discount the lag defective higher rates, but the

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Speaker 1: economy just doesn't work that way. Right until you get

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Speaker 1: higher rates, there's nothing to discount. We might think that

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Speaker 1: we're going to get higher rates, but the certain again,

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Speaker 1: the inversion of the curves suggests that the market is

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Speaker 1: not priced for higher rates. The market does not believe

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Speaker 1: higher rates are coming. So the fantastical choice but to

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Speaker 1: keep on raising rates. But actually it's where you look

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Speaker 1: on the yield curve for that well, even the short

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Speaker 1: term rates. Uh. And by the way, companies are not

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Speaker 1: obligated to borrow in the short end of the market.

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Speaker 1: They can go out long, and in fact they're incentivized

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Speaker 1: to go out long. They can cost them less to

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Speaker 1: borrow in the ten year maturity than in the let's

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Speaker 1: say two year maturity. But even at two years, rates

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Speaker 1: are just not that high relative to inflation. So let's

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Speaker 1: talk a little bit about the political side. We can

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Speaker 1: come back to the markets and maybe even slip in

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Speaker 1: the China question in the time we have. I mentioned

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Speaker 1: that there's been quite an uproar by Republicans as to

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Speaker 1: the raids on the Trump residents at Marrow Lagal. Do

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Speaker 1: you see that as actually benefiting President Trump if INDEEDY

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Speaker 1: decides to run that campaign. Yeah, that's just not clear

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Speaker 1: to me. I'm a PhD economist, I'm a money manager. Uh,

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Speaker 1: you're asking a political question, and I don't know how

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Speaker 1: the public is going to react to it. So my

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Speaker 1: opinion is just as good as as yours. Or the

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Speaker 1: reason I ask you is it would seem to make

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Speaker 1: a big difference for the economy and and you know,

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Speaker 1: policy changes if Trump ran in one, you'd have to

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Speaker 1: think about that even as a money manager. Absolutely, and

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Speaker 1: if Trump ran in one, then obviously things would change

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Speaker 1: pretty dramatically. But before we get too we're looking at two.

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Speaker 1: There's a mid term election coming. I do expect Republicans

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Speaker 1: to regain control of the House. Uh. It's unclear whether

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Speaker 1: they have a good shot at regaining control of the Senate.

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Speaker 1: But if they do regain control of the House, then

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Speaker 1: certainly the more progressive policies that the Biden administration has

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Speaker 1: been trying to get through will cease. They simply won't

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Speaker 1: be able to get them. Uh. And that means that

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Speaker 1: I think policy will come to a stand still. Uh.

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Speaker 1: The progressive end of the Democratic Party will not accept compromise,

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Speaker 1: just as the Tea Party wing of the Republican Party

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Speaker 1: wouldn't accept compromise when when they were exerting a basic

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Speaker 1: uh negation of anything that the administration was trying to do.

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Speaker 1: So I think we're going to have a deadlock Congress

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Speaker 1: before very long and that means most policy actions are

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Speaker 1: going to become hard to pass unless they're widely accepted.

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Speaker 1: Chuck Um. I mean that's it. I mean grid luck

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Speaker 1: is something that many guests have commented on this program

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Speaker 1: saying that it's quite good for markets. But I just

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Speaker 1: want to get a sense of what you most optimistic

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Speaker 1: about and what you most pessimistic about. Well, I'm really

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Speaker 1: pessimistic about the inflation outlook. Um Oddly enough, in the

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Speaker 1: very short run, I think it's going to improve, it's

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Speaker 1: going to come down, and that's because so much of

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Speaker 1: it is transitory. My concern is that so much of

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Speaker 1: it is not transitory and it's going to continue to

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Speaker 1: be sustained. And that's a problem because the current interest

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Speaker 1: rate structure is inconsistent with the inflation rate in terms

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Speaker 1: of economic growth. I think one way to describe it

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Speaker 1: is too much of a good thing, all right. Jack

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Speaker 1: Lieberman the Chief Investment Officer and managing partner and advises

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Speaker 1: capital management with us, with his thoughts. This is Bloomberg